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Sears bankruptcy isn't surprising when looking at these numbers

Brian Sozzi
Editor-at-Large

Many folks across the country will awake Wednesday to news of a looming potential bankruptcy filing by Sears Holdings (SHLD) and be shocked.

Don’t let nostalgia of grabbing that first credit card at Sears 25 years ago or snagging a great blue light special at Kmart in 1989 get in the way of understanding the reality. That reality: Sears and Kmart have been zombie retailers going on over 10 years.

Sears store in Garden City, NY. REUTERS/Shannon Stapleton

The cash-strained Sears has hired advisory firm M-III Partners to prepare a bankruptcy filing that could arrive as soon as this week, according to a report in The Wall Street Journal. Sears is still looking at other restructuring options as CEO Eddie Lampert seeks to avert a messy overhaul in bankruptcy court, the Journal says.

But with a $134 million debt repayment on Oct. 15, a bankruptcy filing for Sears may be the only feasible outcome to keep the lights on another year. Sears burned through $1 billion in cash during the first six months of the year. The company had a mere $193 million in cash on its balance sheet ahead of the critical holiday shopping season, when having enough cash is vital to placing reorders with vendors.

Sears and M-III Partners didn’t immediately return Yahoo Finance’s request for comment. Shares of Sears crashed more than 31% in early trading on Wednesday on the news.

The signs of a bankruptcy that could see more Sears and Kmart locations shuttered have increased in recent months. Controlling shareholder Lampert penned a note to Sears’ board in August saying the company needed to “alleviate its liquidity challenges.” Lampert’s solution, in part, was to buy Sears’  appliance brand Kenmore to raise cash.

In late September, Lampert proposed that Sears sell more assets as it “must act immediately to have sufficient runway to continue its transformation.” Meanwhile, earlier this week Sears added veteran restructuring expert Alan Carr to its board of directors. 

Red flags galore.

So how did Sears put itself in a position where holiday 2018 may be its last? Here’s a breakdown, with numbers that highlight how the once-storied retailer lost considerable market share to rivals Amazon, Home Depot and Macy’s. 

  • Sears has not generated cash from its operations in 13 of the past 20 quarters.

  • Sears has posted eight years of net losses.

  • Free cash flow, the cash that is left after spending on capital expenditures, has been negative for eight straight years.

  • Sears gross profit margin peaked at 28.7% in 2006. In the most recent quarter, it came in at 20.8%.

  • The company has produced negative same-store sales at Sears and Kmart for 15 straight quarters.

  • Sears’ store base has gone from 2,030 locations at the end of 2006 to 506 currently.

  • Kmart’s store base has gone from 1,388 locations at the end of 2006 to 366 currently.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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